Australian and US Share markets – strong but vulnerable?

The Australian sharemarket has reached a 10 year high recently despite Telstra’s woes, concerns about the fallout for the banks from the Royal Commission and some worrying developments internationally. The fall in the AUD to below US 74c combined with strong prices for iron ore and oil have helped but it is still a little surprising to me. The US market is also close to all time highs, primarily due to strong corporate earnings and the tremendous enthusiasm for technology stocks.

The reasons why I am cautious and feel markets are vulnerable comes down to three key risks that could spook investors and cause a significant market pull-back. Firstly, the trade wars started by Trump, secondly the potential for rising US wages to lead to higher inflation and a significant rise in US interest rates and thirdly on-going geopolitical issues.

There is no way to know how serious Trump’s trade disputes with China, Mexico, Canada & Europe will turn out but there is real potential for this to lead to a serious economic slowdown in various countries and falling profitability for impacted corporates. German car manufacturer Daimler AG is the first major company to cut its profit outlook due to escalating trade tensions between the U.S and China.

Wage growth in the very strong US economy is welcome in many respects but could easily lead the Fed to raise interest rates more than the market expects and this could produce an economic slowdown. It is worth noting that the US is overdue, in historical terms, for a recession so some caution is warranted.

The markets seem relatively relaxed about Italy’s economic problems, emerging instability in German politics, spreading disagreements about how to handle illegal immigration and Britain’s challenges negotiating Brexit. However, the geopolitical issue with the most obvious potential to unsettle the markets would be North Korea failing to follow through on promises made to Trump. North Korea has a record of reneging on agreements and who knows how Trump might respond to Kim Jong Un if this happens.

Share markets may continue to rise for some time yet despite already high valuations but it is important to recognise that there are a number of things that could rapidly change investor sentiment so don’t simply assume further rises are inevitable. The recent rapid change in sentiment in the Australian residential property market from boom to caution if not gloom highlights how quickly things can change.

CBA to demerge some businesses including Financial Wisdom, our licensee

To give personal financial advice in Australia you must hold an Australian financial services licence. Ramsay Financial Group is authorised to provide financial advice under the Financial Wisdom licence, which is a currently a wholly owned subsidiary and part of the wealth businesses of the Commonwealth Bank.

On Monday 25 June, Commonwealth Bank announced steps to demerge their wealth businesses, into a new, separate financial services company called CFS Group.

The CFS Group will include CFS Global Asset Management, Colonial First State, and the self-employed financial advice businesses which includes Financial Wisdom. If approved, the demerger is expected to complete in 2019.

It’s important to note that Ramsay Financial Group will continue to operate as its own business now and post the Financial Wisdom demerger from the Commonwealth Bank. This change will also not impact your financial plan or any investment and insurance arrangements that are part of your portfolio.

If you have any concerns or questions about this announcement, please contact Andrew, Steve or Josh on 02 9960.6000 or 08 9481.8535.

From our end, it’s business as usual and we remain committed to helping you achieve your financial goals.

Having an Adviser increases the likelihood a successful Insurance Claim

Making an insurance claim when you or a loved one is unwell or worse is undoubtedly stressful and a burden you would prefer not to have. Not only can we as your adviser assist you with this process, advised life insurance i.e. an insurance policy where the insured person has used an adviser has a higher rate of admitted claims than non-advised insurance across all four product types (Life, TPD, Income Protection and Trauma), according to new data released by ASIC and APRA.

The two regulators released the data as part of the second phase of an ongoing project to collect and analyse claims data from all life insurers. The data, which covered life insurance claims and claims related disputes for the period 1 January 2017 to 30 June 2017, found the admittance rate (claim paid by the insurer) for advised insurance for death cover was 98 per cent compared with non-advised at 88 per cent.

Similar figures were reported for Income Protection cover with admittance rates for advised insurance at 95 per cent compared with 83 per cent for non-advised insurance. With trauma insurance the advised insurance admittance rate was 87 per cent compared to the non-advised rate of 84 per cent.

The difference for TPD cover was much wider with advised insurance having an admittance rate of 86 per cent compared to 67 per cent for non-advised cover. However, the regulators stated there was a relatively low level of claims in the non-advised area which would contribute to more volatility in results.

If you think that you might be entitled to claim under an insurance policy you have let us know; we are here to help.

 Funeral Insurance – not a great deal

Funeral insurance is typically a very expensive way to pay for your funeral and, in my opinion, a bad deal. Most funeral insurance is sold with stepped premiums and many consumers on moderate incomes, such as pensioners and retirees, find the premiums difficult to service as they increase significantly as you age.

Lee Moerman and  Sandra van der Laan in The Conversation report that  A study by the Combined Pensioners and Superannuants Association in 2011 found that if you took out a policy at 50, you could end up paying more than A$140,000 in premiums for a A$6,000 benefit under some policies if you lived until you were 80. They note that “with ever increasing life expectancies, you can be sure that for most funeral insurance premiums people will likely end up paying many times more than any benefit paid”.

“A staggering 80% of policies are cancelled each year, 55% occurring within the first year”.

An alternative to funeral insurance is to buy a prepaid funeral. This product is rigorously regulated by state consumer laws. You know exactly what you are buying, such as ceremony, coffin and cremation but your funeral is “locked-in” to the provider you paid.

This newsletter contains general advice. It does not take into account your individual objectives, financial situation or needs. You should consider talking to a financial adviser before making a financial decision.

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